01—Abstract
Summary
Summary of the 10-K filed February 28, 2011. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. reported net sales of $1,104.7 milliona for 2010, up from $1,055.7 million in 2009, with net income of $65.3 million, or $1.89 per diluted share, compared with $72.6 million, or $2.12 per diluted share, in the prior year.
Operating profit fell to $90.7 millionb from $97.5 million, mainly due to higher restructuring and related charges tied to a December 2010 plan to close a plant in Montgomery, Pennsylvania and reduce operations in St. Austell, England. Management described the company's financial position as very strong, with operating cash flow of $138.3 million and total debt reduced to $358.4 million from $379.6 million. The company operates two segments: Pharmaceutical Packaging Systems, which generated $785.0 million of 2010 net sales, and Pharmaceutical Delivery Systems, which generated $324.1 million.
Sales outside the U.S. were approximately 52% of consolidated net sales. Order backlog was $250.6 millionc at December 31, 2010, all expected to be filled during 2011. Management expects 2011 capital spending of $110 million to $130 million and a 2011 effective tax rate of approximately 24%.
Investors should note the 2011 outlook calls for continued revenue improvement, tempered by a slow global economic recovery, customer consolidation and uncertainty over U.S. healthcare reform. The company also disclosed a February 25, 2011 exercise of its option to purchase a new global headquarters building, with an estimated purchase price of approximately $39.0 milliond, including transaction fees.
02—Key points
Key Highlights
- Net sales rose 4.6% to $1,104.7 million in 2010, or 5.9% excluding foreign currency effects, driven by volume and mix.
- Diluted EPS from continuing operations fell to $1.89 from $2.12, reflecting higher restructuring and related charges of $15.9 million.
- Operating profit declined to $90.7 million from $97.5 million, while gross margin held at 28.8%.
- Operating cash flow of $138.3 million and total debt reduced to $358.4 million from $379.6 million.
- Packaging Systems net sales were $785.0 million and Delivery Systems net sales were $324.1 million in 2010.
- Order backlog stood at $250.6 million at December 31, 2010, up from $238.7 million a year earlier, all expected to ship in 2011.
- The quarterly dividend was raised to $0.17 per share from $0.16, beginning with the fourth-quarter 2010 dividend.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, West Pharmaceutical Services kept $0.06.
- Revenue$1.10B100.0%
- Cost of revenue−$786.6M71.2%
- Gross profit$318.1M28.8%
- Operating costs−$227.4M20.6%
- Operating income$90.7M8.2%
- Interest, other & tax−$25.4M2.3%
- Net income$65.3M5.9%
Where FY2010 revenue went
$1.10B- Cost of revenue: $786.6M, 71% of revenue
- SG&A: $187.7M, 17% of revenue
- Net income: $65.3M, 5.9% of revenue
- R&D: $23.9M, 2.2% of revenue
- Other operating costs: $15.8M, 1.4% of revenue
- Interest, other & tax: $25.4M, 2.3% of revenue
Kept 5.9% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 28, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $1.10B$1.06B | +4.6% |
| Cost of Revenue | $786.60M$752.10M | +4.6% |
| Gross Profit | $318.10M$303.60M | +4.8% |
| R&D Expenses | $23.90M$19.90M | +20.1% |
| SG&A Expenses | $187.70M$177.70M | +5.6% |
| Operating Income | $90.70M$97.50M | −7.0% |
| Interest Expense | $16.80M$15.20M | +10.5% |
| Net Income | $65.30M$72.60M | −10.1% |
| EPS (Basic) | $1.96$2.21 | −11.3% |
| EPS (Diluted) | $1.89$2.12 | −10.8% |
| Shares Outstanding (Basic) | 33.30M32.80M | +1.5% |
| Shares Outstanding (Diluted) | 36.70M36.30M | +1.1% |
05—Questions
Frequently Asked Questions
Why did earnings decline in 2010 despite higher sales?
Reported operating profit and net income were lower than 2009 primarily due to higher severance and asset impairment charges from the fourth quarter 2010 restructuring program. Restructuring and related charges were $15.9 million in 2010 compared with $8.7 million in 2009, and SG&A rose $10.0 million to $187.7 million.
How much is the restructuring program expected to cost?
The company expects approximately $19.0 million to $21.0 million in total restructuring and related charges through the end of 2012, of which $14.0 million to $15.0 million are cash expenditures and $5.0 million to $6.0 million are asset impairment and disposal charges. The plan is expected to generate savings of approximately $6.0 million in 2011, increasing to $12.0 million annually from 2013.
What is the company's exposure to foreign currency?
More than half of revenues are generated outside the U.S. in non-dollar currencies, including 42% in Europe. In 2010 the U.S. dollar appreciated almost 5% against the Euro, reducing reported revenues by $13.7 million and operating profit by $2.5 million. The company uses forward exchange contracts and foreign currency denominated debt to partly hedge this exposure.
How is the company's debt and liquidity position?
Total debt was $358.4 million at year end 2010, and cash and cash equivalents were $110.2 million. The company had $210.2 million of unused borrowing capacity under its multi-currency revolving credit facility, which expires in 2014, and stated it was in compliance with all debt covenants.
Are there any material legal proceedings?
Item 3 of the filing states that there are no legal proceedings to report. The filing separately discloses an accrual of $7.2 million related to Brazilian tax matters that are awaiting final disposition in the Brazilian court system.
06—Continue